OECD calls on UK to increase tax on self-employed

A report from the Organisation for Economic Co-operation and Development (OECD) has called on the UK Government to revive its plans to increase National Insurance Contributions (NICs) for the self-employed.

Earlier this year, during the Spring Budget, the Chancellor of the Exchequer, Philip Hammond, announced that the Government would seek to abolish Class 2 NICs for the self-employed and instead subject them to Class 4 NICs, which are set to rise from 2018.

He argued that the current arrangements created inequality within the National Insurance regime, but he was quickly forced to perform a U-turn by the press and opposition MPs after it was claimed that the move broke the Conservative Party’s “triple tax lock” pledge made in 2011, which said VAT, National Insurance, and income tax would not rise during the life of the Parliament.

However, now that there is effectively a new Parliament in place, following the general election in June, the OECD is calling on the Chancellor to rethink the measure.

“To improve fairness in tax policy and reduce risks for the financing of the social insurance system, the authorities should gradually reduce the gap between NICs for self-employed and employees,” the OECD said.

The OECD has also called on the Government to further devolve powers to local authorities to allow them to set their own rates of council tax and business rates.

“Further decentralisation of these taxes – as started by the New Homes Bonus initiative – could provide more incentives for approving real estate developments,” it said.

“If carried out successfully, such decentralisation could broaden the local tax base by creating a virtuous circle between greater investments in infrastructure and skills, and higher attractiveness of businesses.”

Concluding, the OECD added that Britain faced “serious economic uncertainties” due to Brexit, which is why the country should focus on “maintaining the closest economic relationship with the European Union … for the trade of goods and services, as well as the movement of labour.”